NCLT Dismisses Axis Bank's Plea for Interim Finance in Morarjee Textiles Insolvency Case

Mumbai Bench of NCLT Upholds Requirement for 66% CoC Approval in Financial Decisions During CIRP

In a significant judgment delivered on September 23, 2025, the Mumbai Bench of the National Company Law Tribunal (NCLT) dismissed the application filed by Axis Bank Limited seeking directions for the release of interim finance by the Committee of Creditors (CoC) in the ongoing Corporate Insolvency Resolution Process (CIRP) of Morarjee Textiles Limited. The bench, comprising Member (Technical) Sh. Prabhat Kumar and Member (Judicial) Sh. Sushil Mahadeorao Kochey, reiterated the importance of adhering to the statutory requirement of obtaining a 66% voting approval from CoC for raising interim finance.

Axis Bank, as a creditor, had approached the tribunal following the failure of multiple attempts by the Resolution Professional (RP) to secure interim finance crucial for maintaining the operations of Morarjee Textiles. The RP had highlighted urgent needs such as renewing expired insurance policies and paying outstanding electricity dues, which were deemed critical for safeguarding the assets and continuity of operations of the Corporate Debtor. Despite these pressing needs, the CoC, during several meetings, voted against the proposals for interim finance, citing insufficient funds and lack of requisite voting majority.

The tribunal, referencing Sections 5(13), 5(15), and 28 of the Insolvency and Bankruptcy Code, 2016, emphasized that interim finance constitutes a financial debt raised by the RP during the insolvency resolution process. Such financial measures require approval by a vote of 66% of the CoC's voting share, as stipulated under Section 28. The tribunal further noted that refusal to contribute may lead to other consequences, but extinguishment of a claim for non-contribution is not established without a specific CoC resolution or NCLT order.

In its detailed judgment, the tribunal also referred to the precedent set by the National Company Law Appellate Tribunal in the case of ODAT GmbH v. CA Santanu Brahma (IRP) and Ors., highlighting the necessity for CoC approval in financial decisions impacting CIRP costs. The tribunal observed that negative voting by CoC members could result in the failure of resolutions, thereby impacting the financial mechanisms required to keep the corporate debtor operational during insolvency proceedings.

Despite the RP's repeated appeals for interim finance to manage critical expenses, including wages and insurance renewals, the CoC's lack of agreement led to the dismissal of the application by NCLT. The tribunal maintained that without adequate voting support from the CoC, interim finance cannot be sanctioned.

The judgment underscores the procedural rigor embedded within the Insolvency and Bankruptcy Code, ensuring that financial decisions during insolvency are made collectively by the CoC, thus preventing misuse of funds in distressed companies.

Bottom Line:

Insolvency and Bankruptcy Code, 2016 - Interim finance to be raised during Insolvency Resolution Process requires approval by 66% voting share of Committee of Creditors - Definition of "interim finance" provided under Section 5(15) of the Code, and Insolvency Resolution Process Costs defined under Section 5(13)(a).

Statutory provision(s): Sections 5(13), 5(15), and 28 of the Insolvency and Bankruptcy Code, 2016.

Axis Bank Limited v. Morarjee Textiles Limited, (NCLT)(Mumbai Bench) : Law Finder Doc Id # 2805304